Please write down the calculation and the for using for solving the questions.
1. The _________________ budget should always be prepared first.
2. Why should managers not be punished for missing a budget target? 3. Why can allocation of common costs cause inaccurate decisions to be made? 4. Sherri is going to Chicago to see her friend Ryan. She is trying to decide which is cheaper,
driving or riding the train. Following is a list of costs that Sherri has compiled in relation to
Identify which costs are relevant (R). _________ Annual straight line depreciation on the car
_________ Cost of gasoline
_________ Annual cost of auto insurance and license fee
_________ Maintenance and repairs
_________ Parking fees at home
_________ Cost of train ticket
_________ Reduction in resale value of car due to mileage used and wear and tear
_________ Cost of putting dog in kennel while she is gone
_________ Cost of parking car in Chicago 5. Austin LTD. Manufactures a component that is used in the fans it produces. A supplier has
offered to supply the component for $25 per part. The annual requirements of Austin are
20,000 components. Austin?s cost detail of manufacturing the component is as follows:
$30 It was determined that the special equipment has no resale value and cannot be used for another
process. The factory overhead is an allocation and would be unaffected by the decision. The
costs above are based on the same 20,000 units that the supplier would supply.
Should Austin continue to manufacture the component or purchase it from the outside supplier?
(support your work with numbers). 6. The financial information for Jamison drug store by business line is as follows:
total drugs cosmetics housewares sales
contribution margin $250,000
$20,000 fixed expenses
$28,000 net income/ loss $20,000 $16,000 $12,000 -$8,000 It was determined that the associated salaries, advertising and insurance would all be eliminated
if Jamison drops the housewares segment. The utilities, depreciation, rent and general and
administrative fees are all allocations.
Jamison is currently deciding whether the company would benefit overall if the housewares
business line was dropped completely, since it is losing money consistently each month. Using
what you know about avoidable and unavoidable costs, advise Jamison as their outside
consultant as to which is the better business decision. (Support your work with numbers.) 7. John Boy Lumber cuts logs to create 2 immediate joint products, lumber and sawdust.
Unfinished lumber can be sold as is for $140 or processed further at a sales price of $270.
Sawdust can be sold as is for $40 or processed further for a sales price of $50. There are
joint product costs (costs up to the split off point) allocated to each of the products ? $176 for
lumber and $24 for sawdust. The cost of further processing is $40 for lumber and $20 for
a. Should John Boy Lumber process lumber further or sell the unfinished lumber as is? b. Should John Boy Lumber process the sawdust further or sell it as is? 8. There are 2 types of capital budgeting decisions, screening decisions and preference
decisions. What is the difference between the two? 9. What is the concept of the time value of money? 10. How are flexible budgets more helpful vs. static or planning budgets? 11. Warrior Company needs a new processing machine. The company is considering 2 different
machines: machine 0178 and machine 2216. Machine 0178 costs $20,000 and will reduce
operating costs by $5,000 per year. Machine 2216 costs $15,000 and reduces operating costs
by $3,000 per year. Compute the payback for each machine and determine which should be
selected using the payback method. (show your work). 12. Why is it helpful to evaluate residual income when determining management performance
and not just focus on ROI? 13. What are the 4 perspectives of the balanced scorecard? 14. Eber Wares is a division of a major corporation. The following data are for the latest year of
operations: Required: (be sure to show your work).
i. What is the division's margin? ii. What is the division's turnover? iii. What is the division's return on investment (ROI)? iv. What is the division's residual income?
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